The EV sector has been in a slump with investors pulling back from riskier stocks. Gimmicky Canadian EV company ElectraMeccanica (NASDAQ:SOLO) stock is down more than 25% this month.
The single-occupant-EV developer is looking to make it big in the industry with its three-wheeled flagship EV called the Solo. However, it has failed to start deliveries even though production started several months ago.
The long-term bull case for SOLO stock is incredibly thin, with three-wheeled vehicles’ relative failure and its flawed business model.
With an EV-aligned White House, you’d expect the sector to perform exceedingly well at the stock market. The awareness for electric vehicles should rise in the coming years, leading to higher sales.
However, that shouldn’t apply to companies like ElectraMeccanica, which offer little value to their customers. The stock is up over 450% in the past year purely on speculation. It has yet to prove itself to investors, despite having started production months ago. It has failed to communicate pre-orders for the Solo since 2018.
Therefore, it’s an EV stock that you easily look past for the time being.
There have been quite a few developments with the company in the past few months. Firstly, it received its first batch of Solos from China for promotional purposes. Additionally, it announced several new retail dealerships in states, including California, Arizona and Oregon. Collectively it has 20 retail locations currently and plans to expand to high-end malls in May this year.
Furthermore, it revealed initial concepts of the utility and fleet version of the Solo. The modified version of the cap includes additional space for cargo. The company states that the design was developed with input from its potential fleet partners. On top of that, it has selected Phoenix and Nashville, Tennessee as assembly facility and technical engineering centers.
The company raised another $50 million CAD on the financial front during the third quarter, which takes its cash balance past 100 million CAD. It utilized 7.2 million CAD in its operations, posting a net loss of 14.9 million CAD.
For its latest quarter, analysts point towards sales of 160,000 CAD. That is 33.3% lower than its revenues in the same period last year. For the full year, sales are expected to be an unimpressive 510,000 CAD. However, analysts expect a major bump in the revenues this year with the release of the Solo.
Despite a few positive developments, there is a lot to dislike about the company. For starters, it needs to provide an update on its pre-orders, which previously stood at 64,154 vehicles. What’s strange is that the company focuses on expanding its production capacity rather than focusing on its existing orders.
Additionally, the past failure of three-wheeled vehicles continues to raise questions about the company’s outlook. A big problem with ElectraMeccanica’s Solo is that it costs around $18,500, which is highly expensive. It is almost 50% more pricey than the full-sized Model 3 from Tesla (NASDAQ:TSLA), with just 20% capacity.
With such a limited outlook and use case, the price needs to be significantly lower than its peers to attract customers.
The stock has an inflated valuation considering the lack of long-term prospects. Management, however, has done well to raise cash through share offerings, which should help it stay afloat. However, it would need to impress with its fundamentals to keep investors interested in it in the long run.
Final Word on SOLO Stock
I had major reservations with SOLO stock when I first covered it last year, and those negative sentiments have only gotten stronger. It offers very little value for its potential customers, and instead of meeting existing orders, it is on an expansion spree.
The recent pullback in its price indicates that it’s nothing more than a speculative play for investors. Therefore, it’s best to avoid SOLO stock.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.